The Ultimate Contrary Indicator - Mainstream Economists [View article]
As far as I know they have never predicted a recession. I completely agree that their mechanistic view of the economy as a machine that can be manipulated by pulling just the right lever is utterly mistaken. Econometrics have made a pseudoscience out of the social science of economics. A central economic planning agency like the Fed however must rely on econometric methods, otherwise, how could it possibly 'plan'? That is why they always stress they are waiting for 'incoming data'. They actually believe that one can measure and 'model' what is inherently unmeasurable - namely the decisions and activities of millions of individual actors in the economy. If they were to discard that belief, they would have to abolish their institution.
FOMC to Speculators: The Music Is Still Playing [View article]
Interestingly, in late 1979 when the gold and silver price soared in a parabolic blow-off move, the dollar had already begun to stabilize. The markets didn't believe Volcker when he said he would bring run-away inflation under control until he raised rates to truly painful levels. 1980-1981 was one of the extremely rare periods in the history of the Federal Reserve when the true money supply in the US economy actually fell slightly. Needless to say, Bernanke is no Volcker.
FOMC to Speculators: The Music Is Still Playing [View article]
Please let's stay civil. The US true money supply TMS-2 has grown by 33% since August of 2008. It is the biggest bout of monetary inflation of the entire post WW2 era so far. It is true that banks are hoarding excess reserves, but those are not counted as part of this money supply measure. The Fed also buys bonds from non-banks, which increases deposit money directly, while increasing excess reserves concurrently to the same extent. You should perhaps familiarize yourself with some concepts of monetary theory - I recommend reading this for starters: blogs.forbes.com/micha.../ There are also numerous articles on monetary conditions and theory on my blog www.acting-man.com CPI attempts to measure the 'general price level' - which is actually an impossible task, but rising prices are only ONE possible effect of inflation, and by far not the most damaging one. It is the change in relative prices that does the greatest economic damage. To see how relative prices have changed, you only need to consider soaring stock prices and soaring commodity prices - that is where your 'inflationary effects' can be seen.
Current Greek Bond Drama Portends Restructuring [View article]
Inflation is not a 'magical solution' to all debt problems. If it were, then everyone would be fine if only we let the printing presses run wild. That has been tried many times before and it has always created more problems than it has solved. Inflation is in the end nothing but 'default by other means'. The main difference to a straightforward default is that it tends to destroy the entire economy and not just the creditors who made unwise investments. In addition I would point out that the ECB's policy is currently much tighter than it appears. Euro area money supply growth has lately been negative per the most recent reporting month's annualized rate of change and on a quarterly annualized basis it shows very low single digit growth. Evidently the ECB is - so far at least - true to its word that it will not try to solve the problem via currency depreciation. Granted, the euro area's debt crisis is no longer 'news' - we get inured by the constant barrage of collapsing bond markets, fresh bailouts and so forth - but that doesn't mean it isn't important or that it won't enter a new, more dangerous phase.
Current Greek Bond Drama Portends Restructuring [View article]
Indeed, the exposure of the euro area banks to debt that is at the very least dubious is staggering. If one looks at the ratio of the tangible net asset value of the banks to their loan assets one finds plenty of banks that are levered up to their eyebrows - and many of the most levered ones are ironically in Germany. It is no surprise that the ECB is dead set against haircuts - it has after all the best overview of where the various banks stand. Like you, I expect fireworks in the second half of this year. Not least because I think the contagion effect will continue to drag down the debt of the 'less bad' debtors as well. In fact, it is a bit surprising that the banks themselves seem not to be worried as much as they probably should be, judging from the currently quite liquid interbank funding markets.
Current Greek Bond Drama Portends Restructuring [View article]
I have to agree that the economy of France is not much to write home about. It is a sclerotic socialistic Moloch. And I agree more generally that there is 'black swan' potential galore. Belgium certainly qualifies as well - its debt situation is not entirely unknown of course, but it seems to me it is widely underestimated.
Current Greek Bond Drama Portends Restructuring [View article]
Yes, I think they actually meant 370 billion. I will try to find out, but that strikes me as a far more credible number and jibes with what I recall off the cuff.
Investors Pile Into Precious Metals; Price of Lumber Plummets [View article]
I agree with you that the pace of money printing by the Fed is currently much faster than that of the ECB, but the same can not be said of China, where money supply inflation has vastly exceeded even Heli-Ben's ministrations in recent years. That said, the recent strength of the euro can no doubt be explained fundamentally by the sharp slowdown in euro area money supply growth in recent months. When I refer to support, I only mean technical support. It seems possible that this technical support will come into play as the cessation of 'QE2' comes closer. After all, foreign exchange ratios are also determined by expectations, not only the fundamentals of the present or the recent past.
More on Money and the Fed's Predicament: Part II [View article]
There is no 'better' or 'worse' calculation. No attempts to aggregate the actions and exchanges taking place between millions of individual economic actors at definite points in time and under definite circumstances are likely to tell us anything useful. The equation may be a 'truism' - in fact it is tautological - but that does not improve one's understanding of how money propagates through the economy and how it influences the economy's price structure. As to the issue of the lagged effect of monetary expansion or contraction on prices in the economy, you are mistaken. It is impossible for such lags to be 'fixed in length' and it is likewise impossible for the effects to be proportional (you can easily ascertain this empirically). There is no logical, mathematical or empirical way of proving otherwise. Economics is a social science, not a natural one. It is not possible to create reproducible experimental settings in economics or to describe economic reality with the help of mathematics. Economic models can only ever be 'thought experiments' that can at times be helpful in elucidating economic theory. Creating models that do not correspond to reality such as e.g. the equilibrium of the evenly rotating economy that eliminates changes in market data and the time element can certainly help us to gain an understanding of the processes that are at work in the real world. In short, by regarding a model in which change is hypothetically eliminated, we can improve our understanding of the real world in which such change is constantly occurring. But such a model will never adequately describe the real world populated by individual economic actors and incessantly subjected to changes in market data. As Mises said: "They [mathematical economists] devote all their efforts to describing, in mathematical symbols, various "equilibria," that is, states of rest and the absence of action. They deal with equilibrium as if it were a real entity and not a limiting notion, a mere mental tool. What they are doing is vain playing with mathematical symbols, a pastime not suited to convey any knowledge."
More on Money and the Fed's Predicament: Part II [View article]
To Whidbey - for some reason the 'reply' function did not work, so I could not reply to your comment directly. My 'point' was that I wanted to familiarize readers with some of the Austrian school's views on monetary theory. My hope is that some of the people not familiar with it will want to learn more.
You must consider that the true US money supply TMS-2 has risen almost 150% since just the year 2000. Monetary inflation has been in extremely high gear over the past decade, accelerating markedly from the pace of the 1980's and 1990's. Back in 1980, when gold reached a blow-off top at $850, money TMS-2 stood at roughly 800 billion dollars. Now it stands at nearly $7.5 trillion, and the currency component alone is 25% higher than the entire money supply in 1980. Gold has plenty of monetary inflation to catch up with.
3 Things I Think I Think About the U.S. Economy [View article]
The argument also overlooks that a future government may well decide a default to be preferable over the 'hyperinflation' option - especially as a lot of US debt is held by foreigners, which circumstance would enable a selective default. Better to draw the ire of foreign investors than destroy the entire economy by pursuing hyperinflation may well prove to be a persuasive argument when push comes to shove. After all, what are they going to do? Invade?
You are correct; I should perhaps have put it slightly differently. In order to actually overwhelm the market, the BoJ would have been forced to take truly extraordinary steps in terms of its interventions. It spent some $350 billion over about 18 months in its last big intervention period. I agree that in principle, a central bank should be able to manipulate its own currency downward. However, look at the Swiss - their interventions vs. the euro-CHF cross were relatively speaking an order of magnitude greater and happened over a more compressed time period - and still they failed utterly.
Contemplating Japanese Investment During These Devastating Times [View article]
This is incorrect, or rather it is incomplete. If it were ONLY a tax on currency holders, then it would be nothing but theft, but the negative effects of monetary inflation go much further than that. It distorts the entire productive structure of the economy and so furthers the consumption of scarce capital. If the government wanted to tax someone, it should introduce a tax - not engage in acts that will harm an already stricken economy further.
The Ultimate Contrary Indicator - Mainstream Economists [View article]
The Ultimate Contrary Indicator - Mainstream Economists [View article]
That is why they always stress they are waiting for 'incoming data'. They actually believe that one can measure and 'model' what is inherently unmeasurable - namely the decisions and activities of millions of individual actors in the economy. If they were to discard that belief, they would have to abolish their institution.
FOMC to Speculators: The Music Is Still Playing [View article]
FOMC to Speculators: The Music Is Still Playing [View article]
It is true that banks are hoarding excess reserves, but those are not counted as part of this money supply measure. The Fed also buys bonds from non-banks, which increases deposit money directly, while increasing excess reserves concurrently to the same extent. You should perhaps familiarize yourself with some concepts of monetary theory - I recommend reading this for starters:
blogs.forbes.com/micha.../
There are also numerous articles on monetary conditions and theory on my blog www.acting-man.com
CPI attempts to measure the 'general price level' - which is actually an impossible task, but rising prices are only ONE possible effect of inflation, and by far not the most damaging one. It is the change in relative prices that does the greatest economic damage. To see how relative prices have changed, you only need to consider soaring stock prices and soaring commodity prices - that is where your 'inflationary effects' can be seen.
Current Greek Bond Drama Portends Restructuring [View article]
In addition I would point out that the ECB's policy is currently much tighter than it appears. Euro area money supply growth has lately been negative per the most recent reporting month's annualized rate of change and on a quarterly annualized basis it shows very low single digit growth. Evidently the ECB is - so far at least - true to its word that it will not try to solve the problem via currency depreciation. Granted, the euro area's debt crisis is no longer 'news' - we get inured by the constant barrage of collapsing bond markets, fresh bailouts and so forth - but that doesn't mean it isn't important or that it won't enter a new, more dangerous phase.
Current Greek Bond Drama Portends Restructuring [View article]
Current Greek Bond Drama Portends Restructuring [View article]
Current Greek Bond Drama Portends Restructuring [View article]
Investors Pile Into Precious Metals; Price of Lumber Plummets [View article]
That said, the recent strength of the euro can no doubt be explained fundamentally by the sharp slowdown in euro area money supply growth in recent months. When I refer to support, I only mean technical support. It seems possible that this technical support will come into play as the cessation of 'QE2' comes closer. After all, foreign exchange ratios are also determined by expectations, not only the fundamentals of the present or the recent past.
More on Money and the Fed's Predicament: Part II [View article]
As to the issue of the lagged effect of monetary expansion or contraction on prices in the economy, you are mistaken. It is impossible for such lags to be 'fixed in length' and it is likewise impossible for the effects to be proportional (you can easily ascertain this empirically). There is no logical, mathematical or empirical way of proving otherwise.
Economics is a social science, not a natural one. It is not possible to create reproducible experimental settings in economics or to describe economic reality with the help of mathematics. Economic models can only ever be 'thought experiments' that can at times be helpful in elucidating economic theory. Creating models that do not correspond to reality such as e.g. the equilibrium of the evenly rotating economy that eliminates changes in market data and the time element can certainly help us to gain an understanding of the processes that are at work in the real world. In short, by regarding a model in which change is hypothetically eliminated, we can improve our understanding of the real world in which such change is constantly occurring. But such a model will never adequately describe the real world populated by individual economic actors and incessantly subjected to changes in market data.
As Mises said: "They [mathematical economists] devote all their efforts to describing, in mathematical symbols, various "equilibria," that is, states of rest and the absence of action. They deal with equilibrium as if it were a real entity and not a limiting notion, a mere mental tool. What they are doing is vain playing with mathematical symbols, a pastime not suited to convey any knowledge."
More on Money and the Fed's Predicament: Part II [View article]
Precious Metals Update [View article]
3 Things I Think I Think About the U.S. Economy [View article]
Better to draw the ire of foreign investors than destroy the entire economy by pursuing hyperinflation may well prove to be a persuasive argument when push comes to shove. After all, what are they going to do? Invade?
Ganging Up on the Yen [View article]
Contemplating Japanese Investment During These Devastating Times [View article]